Does coal have a future?

Coal’s future does not look bright in America. Rules already in place and others proposed by the Environmental Protection Agency (EPA) will make it increasingly difficult to build new coal-fired power plants unless they come with carbon capture and storage (CCS) technology, currently an expensive and technically challenging proposition.

Dr. Fereidoon Sioshansi

Europe, where coal has enjoyed a temporary resurgence in the past few years – mostly as a result of the coal glut in the US resulting in irresistibly low prices – is likely to clamp down on future use of coal to meet its carbon targets. The latest news from China, where roughly half of global coal production ends up, is that consumption appears to have peaked and may be flattening. In India, the courts declared that many existing contracts to mine coal were illegal, throwing the entire coal mining industry into panic.

Still, coal is cheap and plentiful. If it was not for its environmental side effects, coal would be the fuel of choice for power generation, something that billions of consumers currently enjoy and billions more without access to electricity would like to have. And that is the line the coal mining industry would like us to believe.

Greg Boyce, the CEO of Peabody Energy, among the world’s biggest private coal mining companies, is convinced that it is either coal or fuel poverty. He recently declared that coal will remain the world’s leading fuel for the next decade, and perhaps longer if the sector can successfully fight off a symbolic clean energy push. Boyce says that if the industry spent more time and money educating the public it would have fewer symbolic moves against coal, which are really done without a full knowledge of the equation. Boyce says that coal is crucial to taking much of the developing world out of energy poverty.

Not much of a future in the US?

Rio Tinto’s energy chief, Harry Kenyon-Slaney, another giant mining company with global footprint, agrees. Speaking at a recent public forum, he said that coal is a cheaper and easier source of fuel than anything other option. Coal-fired power is the only way to satisfy rapidly growing energy use in Asia, India and other developing countries because coal is abundant – with estimated global reserves plentiful for more than another century Kenyon-Slaney says that the energy sector needs to work on reducing emissions from coal-fired power. He says the world has no choice.

But is that really the case, or does the world’s choices seem a bit skewed when viewed from Rio Tinto’s or Peabody Energy’s perspective? As Rio Tinto sees it, carbon capture and storage(CCS) technology already exists. All that remains to be done is to make it work on a commercial scale, admitting such an endeavour would come at huge costs. But what is the alternative? According to Kenyon-Slaney the alternative is economic stagnation with the social and political unraveling that always follows. He might have also added that coal demand and prices have been on a downward trend for several years due to an oversupply and weak global demand. This, perhaps more than anything else is the reason for the statements coming from the likes of Peabody and Rio Tinto.

What about CCS technology? It appears that attempts to move the technology closer to commercial-scale reality have not been entirely successful or promising. CCS may not be as technically daunting as nuclear fusion or moon landing, but it is years away from commercial feasibility at a reasonable cost. Coal is currently cheap because it pays little for its environmental damage, from mining, to transport, to vast amounts of carbon and other undesirable pollutants emitted at power plants and the soot and fly ash which have to be managed.

In early September 2014, NRG Energy’s CEO, David Crane told Reuters that more CCS technology breakthroughs would be needed if it was going to meaningfully contribute to the climate change problem. Crane said that CCS isn’t the panacea or the final solution in the climate wars, but it’s an important step.

NRG Energy, of course, knows a thing or two about CCS. It has been working to retrofit one of the units at its WA Parish power plant in Texas to capture its carbon emissions and pipe it to a depleted oil field some 130 km away to extract more crude oil. The $1-billion project, a joint venture with Japan’s JX Nippon, is among the most advanced and promising of its kind, since the captured carbon not only has a reservoir to fill, but will actually get paid for pushing more oil out of the ground. The Petra Nova project, expected for completion in 2016, will be among the largest of its kind in the world.

Crane, however, made it clear that it is not a slam dunk by any stretch of imagination, even with research and development backing from the government. In his public remarks to Reuters, he played down hopes around clean coal technology’s potential. Even if the CCS technology proves successful and commercially feasible, experts believe that only a small fraction of existing coal-fired power plants would be able to apply the new technology because most are nowhere near depleted oil fields or suitable underground reservoirs to store the vast volumes of carbon.

Perhaps the coal mining companies are not following the news, or prefer not to. If they were, recent developments by pension funds and investment managers to gradually divest of fossil fuel assets – notably coal – would alert them of tougher days ahead. Not only will they have to face an uphill battle with pesky regulators such as the EPA but also get pushback from investors who are likely to want to cleanse their portfolios of dirty assets due to increased pressure from vocal and equally annoying environmental activists.

The coal lobby’s ultimate silver bullet, CCS technology may be years off, and will most likely make coal more expensive than it currently is. In the meantime, the cost of renewable technologies and energy efficiency – virtually always a better and cheaper option than generation – continue to fall. As long as the only alternative to fuel poverty is coal, coal will win. But for how much longer will that be the case?